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PETITIONER: TATA DAVY LTD. ETC.

       Vs.

RESPONDENT: STATE OF ORISSA & ORS.

DATE OF JUDGMENT:       04/08/1997

BENCH: S.P. BHARUCHA, V.N. KHARE

ACT:

HEADNOTE:

JUDGMENT:                 THE 4TH DAY OF AUGUST, 1997 Present:                Hon’ble Mr. Justice S.P.Bharucha                Hon’ble Mr. Justice V.N.Khare (R.F.Nariman, Sr.Adv.,  S.Sukumaran) Adv. for M/s JBO & Co., M.L.Lathoty,   P.K.Sharma,    Himanshu   Shekhar,   P.S.Jha, P.N.Mishra, Advs. with him for appearing Parties.                       J U D G M E N T      The following Judgment of the Court was delivered:                             WITH              (Civil Appeal Nos.1362-63 of 1991)                       J U D G M E N T S.P. BHARUCHA, J.      The facts that we state relate to the case of Tata Davy Limited (C.A.  No.1354/91).   They are substantially similar to the facts of the other appeals.      The said  appellant was, o 9th February, 1988, declared a sick  company within  the meaning  of the  Sick Industrial companies (Special Provisions) Act, 1985 (now referred to as "the Central  Act").  On a reference under Section 15 of the Central Act  made on  23rd December,  1989, an inquiry under Section 16 was made and a scheme was sanctioned by the Board for Industrial and Financial Reconstruction (now referred to as "the  Board") for the said appellant’s benefit and it was at the relevant time under implementation.      For the  Assessment Years  1983-84 and 1984-85 the said appellant was in arrears of sales tax under the Orissa Sales Tax Act, 1947 (now referred to as "the State Act"). Recovery of the  said arrears  was sought to be made by attachment of the  said  appellant’s  property  under  the  provisions  of section 13-A  of the State Act. The High Court of Orissa was considering the  question whether steps to recover sales tax dues under  Section 13-A of the State Act were in the nature of proceedings  by way  of execution,  distress or  the like contemplated by  Section 22(1)  of the Central Act in a writ petition  filed  by  M/s.  Aluminium  Industries  Ltd.  (the appellant in  the other  appeals) which was, as aforestated, in a  position similar  to that  of the said appellant.  The said appellant  intervened in  the  writ  petition  and  was heard.

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    The High  Court  said  in  its  judgment  on  the  writ petition  that  the  question  before  it  was  whether  the provisions of  Section 22(1) of the Central Act overrode the provisions of  Section 13-A  of the  State Act. It held that there  was  no  irreconciliable  conflict  between  the  two provisions as  they operated  in separate an distinct fields and, therefore,  both were  capable of  being obeyed.    The result was  that Section 22(1) of the Central Act "would not protect the  properties of  industrial companies  from being proceeded against in exercise of the power under Section 13- A of the State Act".      Very soon  after the  High Court’s  judgment this Court decided the case of Gram Panchayat and Anr. vs. Shri Vallabh Glass Works Limited & Ors., 1990 (1) S.C.R. 966, to which we shall make  reference.   The appellants  applied to the High Court to  review its  decision in  the light  of the Vallabh Glass  Works’   judgment.  The   High  Court  expressed  its inability to do so.      Hence, these appeals.      For  the  purposes  of  appreciating  the  controversy, Section 22(1) of the Central Act needs to be set down.      "22.    Suspension     of     legal      proceedings, contracts,  etc. - (1)      where in  respect of  an industrial      company an inquiry under section 16      is pending  or any  scheme referred      to  under   section  17   is  under      preparation or  consideration or  a      sanctioned    scheme    is    under      implementation or  where an  appeal      under section  25  relating  to  an      industrial  company   is   pending,      then,   notwithstanding    anything      contained  in  the  Companies  Act,      1956 (1  of 1956), or any other law      or the  memorandum and  articles of      association   of   the   industrial      company  or  any  other  instrument      having effect under the said Act of      other law,  no proceedings  for the      winding  up   of   the   industrial      company or  for execution, distress      or the  like  against  any  of  the      properties   of    the   industrial      company or for the appointment of a      receiver in  respect thereof and no      suit for  the recovery  of money or      for the enforcement of any security      against the  industrial company  or      of any  guarantee in respect of any      loans   or advance  granted to  the      industrial company  shall lie or be      proceeded with further, except with      the consent of the Board, or as the      case   may    be   the    Appellate      Authority."      Learned counsel for the appellants placed reliance upon the judgment in Vallabh Glass Works. Vallabh Glass Works had been declared  a sick  industrial company within the meaning of Section  3(1) (o) of the Central Act.  The appellant Gram Panchayat initiated  coercive proceedings  under Section 129 of the  Bombay Village  Panchayat Act  against Vallabh Glass Works to  recover arrears  of property  tax.  Vallabh  Glass Works filed  a writ  petition in  the High  Court at  Bombay claiming the  protection of  Section 22  of the Central Act.

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The writ  petition  was  allowed,  and  the  Gram  Panchayat appealed to  this Court.   This  Court noted  that the  said Board had  been satisfied  by its  order dated  27th August, 1987, that  Vallabh Glass Works had become a sick industrial company  and,  consequently,  steps  had  been  taken  under Sections 16  and 17  of the  Central Act.  As  soon  as  the enquiry under Section 16 was ordered by the said Board, this Court said,  the various  proceedings set  out under Section 22(1) of the Central Act were deemed to have been suspended. Creditors could  then approach the said Board for permission to proceed  against the  sick company  for recovery of their dues and  the said  Board, at  its discretion,  could accord such approval.   If approval was not granted, the creditors’ remedy was  not extinguished.  it was  only  postponed.  The section provided  for exclusion  of the  period during which the remedy  was suspended  while  computing  the  period  of limitation for recovery of the dues.      Learned counsel  for the  appellants submitted  that in the case  of Vallabh  Glass Works  this Court had dealt with proceedings for  recovery of  dues under a State Act and had come to the conclusion that Section 22(1) of the Central Act applied thereto.  The case of the appellants was, therefore, squarely covered by the Vallabh Glass Works judgment.      Learned  counsel  for  the  respondents  submitted  the Section  22(1)   of  the  Central  Act  should  be  so  read as not  to interfere  with the exclusive power of the States to legislate  under Entry  54 of  List  II  of  the  Seventh Schedule of  the Constitution  in respect  of sales tax.  In his submission,  the words  "any other law" in Section 22(1) of the Central Act must be so read as to exclude all laws on List II subjects, for Parliament must be assumed to know its limitations.   Learned Counsel  cited the  judgment of  this Court  in   Deputy  Commercial   Tax  Officer   &  Ors.  vs. Corromandal Pharmaceuticals  & Ors.,  1997 (2) SCALE 640, as supporting his case.      The Vallabh  Glass Works judgment covers these appeals. Arrears of  taxes and  the like  due  from  sick  industrial companies that  satisfy the  conditions set  out in  Section 22(1) of  the Central  Act cannot  be recovered  by coercive process unless the said Board gives its consent thereto.      The Central  Act is enacted under Entry 52 of List I of the Seventh Schedule.  The said Entry 52 empowers Parliament to legislate in respect of "Industries, the control of which by the  Union is  declared by Parliament by law to be in the public interest".   The Central Act declares that it is "for giving effect  to the  policy of  the State towards securing the principles  specified in  clauses (b) and (c) of Article 39 of  the Constitution",  namely, "that  the ownership  and control of  the material  resources of  the community are so distributed as  best to serve the common good" and "that the operation of  the economic  system does  not result  in  the concentration of  wealth and  means  of  production  to  the common detriment".   The  Central Act  does  not  impair  or interfere with  the rights  of the  States to legislate with respect to  sales tax  under Entry  54 of  List  II  of  the Seventh Schedule.   In the larger interest of the industrial health of the nation, Section 22 of the Central Act requires all creditors  seeking  to  recover  their  dues  from  sick industrial companies  in respect  of whom  an inquiry  under Section 16  is pending  or a  scheme is under preparation or consideration or  has been  sanctioned to obtain the consent of the  said Board to such recovery.  If such consent is not secured and  the recoverers  deferred, the creditors’ remedy is protected  for the  period of  deferment is, by reason of sub-section (5)  of Section  22, excluded in the computation

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of the  period of  limitation.  The words "any other law" in Section  22   cannot,  therefore,  be  read  in  the  manner suggested by learned counsel for the respondents.      The Corromandal  Pharmaceuticals judgment  dealt with a sick industrial company which was enabled to collect amounts like sales  tax after  the date  of the  sanctioned  scheme. This Court said, "Such amounts like sales tax, etc which the sick industrial company is enabled to collect after the date of the  sanctioned scheme,  legitimately  belonging  to  the Revenue, cannot  be and  could not  have been intended to be covered within  Section 22  of the  Act". It  added that the issue that  had been  arisen before it had not arisen in the case of Vallabh Glass Works.  It did not appear therefrom or from any  other decision of this Court or of the High Courts "that in  any one of them, the liability of the sick company dealt with therein itself arose for the first time after the date of sanctioned scheme.  At any rate, in none these cases a situation  arose whereby  the  sick  industrial  unit  was enabled to collect tax due to the Revenue from the customers after the  sanctioned scheme but the sick unit simply folded its hands  and declined  to pay  it over to the Revenue, for which proceedings  for recovery  had to be taken".  Clearly, the facts  in the  Corromandal Pharmaceuticals  case  differ from the  facts of  the Vallabh  Glass Works  case and those before us.  The reference to the Corromandal Pharmaceuticals case is, therefore, inapposite.      We hold,  in the  premesis, that the respondents cannot recover the  aforementioned arrears  of sales  tax from  the appellants without  first seeking  the consent  of the  said Board in this behalf.      The appeals  are allowed  and the  judgments and orders under appeal are set aside. No order as to costs.